Boston Commercial Market at Mid-Year: Investors Fly High as Rents Reach Record Level

Wall Street investors like The Blackstone Group, Broadway Partners, Normandy Real Estate Partners, and Beacon Capital Partners have been enjoying quite a ride in Boston, as rents and vacancies have reached respective highs and lows not seen in more than six years: Average asking Class A office rents in Boston have climbed from $47 per square foot in the first quarter to $52/SF at the close of Q2, while office vacancy has dropped to 10%. More dramatically, some high-rise asking rents in the top floors have reached $90/SF, and vacancy in the Financial District and Back Bay for Class A space is about 6%.

As less choice inventory is available, many companies are looking at Class B buildings downtown, but rates in that market are climbing almost as quickly, up from $35/SF last quarter to $38/SF today.

Dictating these terms, Wall Street investors have swooped into Boston and other metro markets nationwide, aiming to gobble up prime portfolios, make a relatively quick killing, and then fly into other feeding grounds. By passing along rent increases of 30% to 50% to newly vulnerable tenants, it seems that that have reached their objectives. But the investment giants may be leaving faster than they had anticipated, as the landlord market appears to be cresting.